3.0% Cap

Thursday, July 9, 2009

Following a comprehensive two-month application evaluation and selection process, during which over 100 unique applications to participate in Legacy Securities PPIP were received, Treasury has pre-qualified the following firms (in alphabetical order) to participate as fund managers in the initial round of the program:

The AG&Co/GE Partnership has at least $5 billion of real estate AUM between them, and each have well-known and highly-thought-of management teams. I would guess BlackRock has somewhere in the neighborhood of $3 billion. Marathon $800 MM and Oaktreee $600 MM. (Pure guestimations on my part -- I'm sure their respective websites include some information on the real estate portfolios.)

What strikes me, though, is (a) the fact that so-called "manipulative" and "excessively speculative" hedge funds and private equity funds are pretty much the only ones chosen, and (b) how distressed Oaktree and Marathon's real estate portfolios are. These are the managers Treasury chose?

I guess since the Treasury itself is trying to manipulate markets and overpay for assets, some of these selections make a little more sense.

Monday, July 6, 2009

I originally started this blog in 2007, when it was common that trophy commercial real estate assets would trade for 3% cap rates (cap rate = property-level net operating income divided by property value). I felt the market correction coming -- albeit not nearly to the extent that we are experiencing today, nor the extent to which I think we'll see in the next couple of years.

Two years later, I'm at my second company since leaving the boutique i-banking firm, including 15-month pit stop at one of the biggest hedge funds on the Street (where my strategy proceeded to blow up). And I, like everyone else, am wondering -- where do we go from here?

The people who used to read this blog are probably long gone. Most who worked in the CRE industry in New York have left for less-competitive locales. So I'm really just posting this to see if it's picked up on anyone's RSS feeds.

I dropped everything when I went to the hedge fund to focus 100% of my time on the strategy. Now that I have a bit more time on my hands, I'll probably resume blogging regardless of whether anyone reads it. It's amazing to me that since I started this, there still have been no blogs about commercial real estate that have popped up given everything that's going on. It's an incredibly interesting time, yet no one seems interested.

Thursday, August 9, 2007

"So that's become the story everywhere. I mean it's not that we can get debt so long as we pay more, almost no one is actually issuing any. I mean any. Lots of firms have standstills. Total standstills." Suddenly, what was an amusing tale of non-sex becomes an alarming warning.

"Well, I can see how the larger debt issuances might be an issue, but how much were you trying to score?" I ask.

"I wasn't trying to score. He's cute, but not that cute."

"Bad choice of words. How much debt?"

"Oh, that was for Project Yonkers, so $450 million?" Now I am more alarmed. "You can't get anyone to pick up $450 million?"

"Well, I haven't tried everyone yet, but I've never gone 48 hours without even getting a term sheet before." I am stunned. Laura is bored.

One-Month LIBOR shot up overnight to 5.54%, crushing DSCRs on floating rate deals that -- until today -- were the only reliable way to finance large transactions. Forget finding fixed-rate financing -- 3Cap's friends at Deutsche, Wachovia, LaSalle, and Credit Suisse aren't even quoting. The few, the brave few who ARE quoting are giving notice that their quotes are good for about 24-hours, and any terms provided are subject to market conditions.

A good friend at Citigroup has sized up 2 deals since the weekend. Neither are likely to transact.

Rumor has it that Wachovia may report sizable losses in its CMBS lending and securitization operations from aggressive loans that they haven't been able to securitize. But given that Wachovia is one of the faster banks on the street to clear loans off their shelves, I find it hard to believe that there won't be several others (if the rumor is true, of course).

Most b-note players are out on the golf course for the rest of the month, as subordinate financing becomes more scarce by the day. No one can finance their originations via CDOs, so why bother?

I keep hearing the first-year guys and summer associates yell in delight about how the 10-yr Treasury yield has fallen 10 bps this morning, as if the 10-year matters right now.

The New York Sun says the mayhem may actually be good for the markets. Wha? In what time frame? And for whom? Certainly lower leveraged pension funds, maybe insurance companies and balance sheet guys in the short term. But long term? How is it "good for the markets" when you cut transactions by at LEAST 50% over the course of at least the next year??

Friday, May 25, 2007

I'll be working, as well as many of you. Luckily, I'll be working from a hotel in a warm and sunny locale, a thousand miles from the City.

Blogging via email from a plane on the runway at EWR right now, I can't help but look across the aisle at strangers chatting each other up and thank God for these tiny planes with only one seat on the left side of the plane. A window seat and an aisle seat in one - and no "consultant" bragging about his latest regional award.

Mr. Condocon Verter, a New York-based real estate investor, hated to hear the news, as it took one of the two remaining lenders out of the market who were dumb enough to still be lending on condo projects (even in South Florida). Mr. Verter was overheard saying as his head hung low, "At least there's still Corus."

Friday, May 18, 2007

There's a rumor making the rounds that Wachovia's originators are complaining their latest pricing sheet is up to 30 bps wide of the competition, essentially putting them on the beach and out of the game.

Deutsche Bank is rumored to be sitting on the sidelines as well. Word is that the guys at both banks aren't too happy, and aren't sure if this is temporary or the proverbial "writing on the wall".

If you are job hunting, lock up a place ASAP, because I have a sneaking suspicion that the pool of candidates in the market right now (already wider than usual) could get even wider in June.

Fortress Acquiring Flagler Development for $3.5 Billion (CoStar)Apparently bought all-cash, which is somewhat surpring. I would say that is may be due to the fact that development firms which aim for quick development and exits tend to be low on operating cash flow, especially in today's environment where less buyers are buying on in-place income and rather focusing on future stabilized cash flows and/or values... but Flagler has a sizable portfolio of owned assets. In any event, it's definitely the news of the day [yesterday].

Mathias named SL Green President (Forbes)Notorious BSD Andrew Mathias has been promoted to president of SL Green and will keep the CIO title as well (of both SLG and Gramercy Capital). Previously, CEO Marc Holliday was President of the company as well. Said Holliday, "Andrew could make eight kajillion bazillion dollars if he were to start something up himself, so I'm perplexed that he accepted my offer of a title upgrade and some extra pocket change." ...Or maybe that's just what I said ... to myself.

NAR: Commercial Real Estate Investment Expected to Remain Strong (EARTHtimes.org)Don't ask how I happened upon an EARTHtimes link, but its really just a press release from the National Association of Realtors which cites the fact that more dumb money is being thrown at commercial real estate deals in 2007. "Investment in commercial real estate rose 11 percent to a record $306.8 billion in investment-grade transactions in 2006, with office buildings leading the way."

If a high-rise is developed in downtown LA, does it make a sound? (CPN)I don't know many people who care much about Los Angeles real estate, save for Maguire Properties, I'm sure... but according to CPN, "Plans have been announced for Park Fifth, a high-rise residential and hotel complex in Downtown Los Angeles. Africa Israel and Namco Capital Group are serving as the capital partners for the $1 billion project, which is being developed by Houk Development Co." It will be the tallest residential property west of Chicago at 76 stories on Fifth and Olive (and another 43-story tower). It will include 732 condos, a 220-room five-star hotel and a 15-story bridge linking the two towers. Groundbreaking will take place in Q1 2008.

Monday, May 14, 2007

Marathon filed their IPO papers with the SEC on Friday for a $200 million IPO and REIT classification. According to the linked GlobeSt.com story, the company controls assets totaling about $1.3 billion, including $886 million of assets financed in a CDO. More than 50% of their portfolio is in New York or California. About 25% is in hospitality and about 23% is in office.

Overview

Three Capper is a VP at a New York-based investment bank where he tries to get deals done in the worst market since the early 90's, often making futile attempts at structuring highly-complex real estate transactions.